Climate change threatens
to seriously undermine efforts to eliminate poverty and
reach the Millennium Development Goals (MDGs),
particularly in the least developed countries. At
greatest risk are the rural poor, who depend on the
natural environment for their livelihoods.

World temperatures have
increased by around 0.7 C since the advent of the
industrial era. The 2007/2008 Human Development Report
on Fighting Climate Change launched by UNDP this
November highlights that keeping 21st Century global
temperature increases within a 2 C threshold above
pre-industrial levels will require cuts in emissions of
greenhouse gases by at least 50% relative to 1990
levels.

The IEA (2006) estimates
that the investment required in energy infrastructure in
developing countries to meet growing energy needs will
exceed $ 300 billion/year over the period 2001-2030. ODA,
at present, provides approximately $7 billion per year
for energy-related activities, and is only a small
percentage of what is required. Thus, the double
challenge for energy and climate change policies today
is to find ways to attract enough direct investment to
meet the growing energy supply infrastructure needs of
low income countries to sustain their economic
development and to drive these direct investments
towards lower carbon technologies, to avoid dangerous
climate change.

Clearly, major new
investments and innovative financing mechanisms are
needed. The good news is that the new carbon market
mechanisms that have emerged under the Kyoto Protocol,
notably the Clean Development Mechanism (CDM) and the
Joint Implementation (JI), have the potential to
substantially augment financial resources available to
developing countries and Economies in Transition for
clean energy development and sustainable land
management. In 2006, the value of the burgeoning CDM
market was around $5 billion – up from zero in less than
5 years. According to a recent UNFCCC report, the CDM
could leverage between $15 and $100 billion per year of
additional resources to promote sustainable development
in developing countries by 2030.

Recognizing the role that
carbon finance can play, a major focus of UNDP’s
mitigation efforts is on increasing the ability of
countries to access carbon markets in a manner that
allows them to capitalize on the double dividend of
climate mitigation along with socio-economic progress.
To date, UNDP has implemented CDM/JI capacity
development activities in more than 20 countries.
Nonetheless, the number of countries accessing this
expanding CDM/JI market in a significant way is small.
Currently, just five countries are expected to generate
over 80% of CDM credits by 2012. All too often, current
market rules are also failing to attract direct
investors into lower-carbon technologies and sustainable
land use projects. Almost half of the anticipated CDM
credits to 2012 will come from non-CO2 industrial gas
emissions (such as HFC23 destruction and capture of N2O
emissions), characterized by a high return on investment
but limited human development benefits.

What
can UNDP do about it?

UNDP considers climate
change to hit at the very heart of its development
mission. In tandem with other UN organizations, as well
as the rest of the development and environmental
community, UNDP is on the ground in developing
countries, providing real solutions to this critical
challenge of our time.

UNDP’s approach for
mitigating climate change is to enable developing
countries to align their GHG reduction and human
development efforts, and promote mitigation activities
that do not slow down, but rather accelerate
socio-economic progress. For example, a shift from
fossil fuel based energy to renewable energy
alternatives can produce development dividends in the
form of reducing the energy bill of oil-importing
countries, increasing energy security, providing
increased access to energy for the rural poor, and
reducing local environmental health impacts, among
others.

Building on its experience
in market transformation for low carbon technologies as
one of the three founding Implementing Agencies of the
Global Environment Facility (GEF), UNDP has established
the MDG Carbon Facility to help leverage the potentially
significant benefits of carbon finance. Its core
objectives are:

Broadening access to
carbon finance by enabling a wider range of
developing countries to participate;

The MDG Carbon Facility
forms part of UNDP’s comprehensive, three-step approach
to capacity development in carbon finance. On a
country-by-country basis, this approach commences with
barrier removal to direct investment in lower carbon
technologies, then addresses the establishment of
efficient host-country procedures for CDM and JI, and
finally culminates in the development of pioneer
emission reduction projects by the Facility. Once a
carbon market is firmly established, attracting
private-sector investment and developing project
technologies that deliver longer-term development
benefits, the MDG Carbon Facility will exit that market,
having accomplished its market transformation
objectives.

How
does the MDG Carbon Facility work?

The MDG Carbon Facility
represents an innovative public-private partnership
between UNDP and an international financial services
provider, Fortis Bank, offering prospective emission
reduction projects a comprehensive "one-stop-shop"
package of services. Under the terms of the partnership
UNDP will help developing countries conceive projects
intended to reduce emissions of greenhouse gases, and
will ensure that these projects meet the CDM’s and JI’s
agreed standards and deliver real, sustainable benefits
to the environment and broader human development. Fortis
will then purchase and re-sell the emissions offsets
generated by these projects. Proceeds from Fortis’
purchases will provide developing countries and
communities with a new flow of resources to finance much
needed investment and to promote development.

The MDG Carbon Facility
capitalizes on UNDP’s specialized expertise and global
reach, to combine them with Fortis’ resources and
substantial carbon experience. UNDP’s collaboration with
Fortis will encompass an initial pipeline of projects
issuing emission offsets during the first Kyoto
commitment period from 2008 to 2012.